Fely Lazaro Smirnoff

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MEMORANDUM RE RELIEF FROM STAY
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UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
In re
FELY LAZARO SMIRNOFF,
aka FELY SANTIAGO,
Debtor.
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Case No. 09-32268 TEC
Chapter 11
MEMORANDUM RE RELIEF FROM STAY
On October 5, 2009, the court held a preliminary hearing
regarding the motion for relief from stay brought by secured
creditor First Federal Bank of California (Creditor) regarding the
real property known as 455-457 Potrero Avenue, San Francisco,
California (the Property). 	Marc Voisenat appeared for Debtor.
Edward S. Kim appeared for Creditor. 	The court announced at the
hearing that it would require Debtor to file a written response to
the motion, and it would hold a continued hearing. 	Upon further
consideration, the court determines that relief from stay should be
granted immediately.
The Property is a three-unit residential building that is used
Signed and Filed: October 22, 2009
________________________________________
THOMAS E. CARLSON
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
October 22, 2009
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 09-32268 Doc# 36 Filed: 10/22/09 Entered: 10/22/09 10:33:26 Page 1 of 5

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MEMORANDUM RE RELIEF FROM STAY
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by Debtor solely for the generation of income. 	Debtor’s counsel
acknowledged at the hearing that Debtor has no equity in the
Property, as the amount due Creditor greatly exceeds the value of
the Property. 	That being the case, relief from stay must be
granted unless the Property is necessary to an effective
reorganization. 	11 U.S.C. § 362(d)(2). 	Debtor’s counsel stated
that the Property was essential to an effective reorganization for
the following reasons: (1) Creditor’s lien can be reduced to the
value of the property under section 506, because the Property is
not Debtor’s residence; and (2) Debtor can propose a plan that will
pay Creditor’s allowed secured claim in full with interest over
time from expected rental income, and still leave Debtor with a
positive cash flow to use to pay other creditors.
I determine that the Property is not necessary to an effective
reorganization, and that relief from stay should therefore be
granted, for the following reasons.
First, Debtor does not use the Property in the operation of a
business. 	The Property is not a plant, store, office, or warehouse
essential to the operation of a larger enterprise. 	It is simply
residential real property from which Debtor hopes to earn net
rental income.
Second, the court has serious questions as to whether Debtor
could ever have any significant positive cash flow, if the Property
is valued correctly accurately, and if the interest rate on the
secured claim is determined correctly. 	The Property is income-
producing property and will be valued primarily on the basis of its
expected net operating income. 	The higher the income, the higher
the value of the Property. 	The debt service that Debtor must pay
Case: 09-32268 Doc# 36 Filed: 10/22/09 Entered: 10/22/09 10:33:26 Page 2 of 5

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MEMORANDUM RE RELIEF FROM STAY
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from the net operating income is a function of the amount of the
debt, the length of the amortization, and the interest rate. 	The
debt service Debtor will have to pay will be very high relative to
the net operating income for two reasons: (1) Debtor’s scenario
necessarily contemplates a loan-to-value ratio of 100 percent; and
(2) the court would have to require Debtor to pay a relatively high
rate of interest, and could not permit Debtor to fix an unusually
long amortization period, because of the high loan-to-value ratio
and Debtor’s poor history of payment. 	Thus, it appears unlikely
that the net operating income is likely to be substantially in
excess of what this Debtor would have to pay to service a loan
equal to 100 percent of the current fair market value of the
Property.
Third, it is extremely unlikely that Debtor could confirm a
plan under which he retained the Property. 	Debtor states that the
fair market value of the property is $450,000 and that the amount
due under the deed of trust held by Creditor is $770,000. 	If
Debtor did succeed in reducing Creditor’s secured claim to
$450,000, Creditor would have an unsecured deficiency claim of
$320,000. 	Section 1111(b). 	Debtor can confirm a plan under which
he retains the Property, only if each class of unsecured creditors
is paid in full (impossible here) or votes to accept the plan.
Section 1129(b)(2)(B). 	Any unsecured creditor holding one-third of
the allowed unsecured claims within a given class can block
acceptance of the plan by that class. 	Section 1126(c). 	Debtor’s
scheduled unsecured claims total $92,500. 	Creditor could use its
unsecured deficiency claim to block acceptance of any plan under
which Debtor retained the Property.
Case: 09-32268 Doc# 36 Filed: 10/22/09 Entered: 10/22/09 10:33:26 Page 3 of 5

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MEMORANDUM RE RELIEF FROM STAY
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The only way in which denial of relief from stay could
legitimately further reorganization is to prevent the Creditor’s
deficiency claim from being asserted against other assets of the
estate. 	The court has prevented that by granting relief from stay
to permit non-judicial foreclosure, under which there will be no
deficiency claim.
Cause exists to grant relief from stay.
**END OF MEMORANDUM**
Case: 09-32268 Doc# 36 Filed: 10/22/09 Entered: 10/22/09 10:33:26 Page 4 of 5

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Court Service List
Marc Voisenat, Esq.
Law Offices of Marc Voisenat
1330 Broadway, Suite 1035
Oakland, CA 94612
Edward S. Kim, Esq.
Hemar, Rousso and Heald
15910 Ventura Blvd. 12th Floor
Encino, CA 91436
Case: 09-32268 Doc# 36 Filed: 10/22/09 Entered: 10/22/09 10:33:26 Page 5 of 5